Hurricane Energy warns shareholders could be left with ‘no value’
UK North Sea oil group says it may have to run down key asset and halt further development
Shares in Hurricane Energy plunged by nearly a third on Friday as the North Sea oil producer warned investors they faced a possible dilution or even being left with “no value” as it starts talks with bondholders over its future.
Aim-listed Hurricane was once seen as a bright hope for the ageing UK North Sea as it sought to prove that oil could be commercially recovered from a type of reservoir known as “fractured basement”.
But the company has had a tumultuous year after being forced to admit in May that it was unable to sustain intended production rates at its key asset located to the west of the Shetland Islands.
Hurricane parted with its founder and former chief executive Robert Trice in June, and has since been researching how it can maximise output from its flagship Lancaster field.
However, the company said on Friday it had appointed advisers to commence talks with “key stakeholders”, including bondholders, as it tries to secure “suitable funding arrangements” for developing Lancaster, which is located in waters that often suffer poor weather conditions.
The company had cash of $87m at the end of November and has a $230m bond that matures in July 2022.
Hurricane warned there would be “a risk of dilution to existing shareholders from a possible restructuring and/or partial equitisation” of its bonds.
If an agreement cannot be reached, the group warned it might have to abandon its planned development, continuing to produce as much oil from the Lancaster field as is economically viable before decommissioning it “with potentially limited or no value returned to shareholders”.
The company, which also had to contend with the sharp plunge in oil prices in the first half of the year, did not offer any guidance on when decommissioning might occur if it could not secure an agreement.
Shares fell more than 30 per cent in morning trading on Friday in London, adding to Hurricane’s heavy losses so far this year, which now stand at almost 90 per cent. Once worth more than 60p, they are now trading around 3p.
“While there can be no certainty as to the outcome of this engagement, we continue to believe there is significant value in Lancaster and our broader West of Shetland portfolio,” said Antony Maris, Hurricane’s new chief executive. “And we remain focused on delivering that value for the benefit of our stakeholders.”
Fractured basement reservoirs are in naturally occurring fissures in hard rock such as granite that lie below the softer sedimentary sandstone from which most North Sea oil is recovered.